Stocks you can pick up this week

Mangalam Cement
Research: Emkay
Recommendation: Buy
CMP: Rs 207 (Face Value Rs 10)
12-Month Price Target: Rs 306

Mangalam Cement (MCL) is a Rajasthan-based cement player with an aggregate capacity of 1.5 million tonnes. MCL repaid its entire long-term debt as on October ’06 and plans to expand its cement capacity by 0.50 million tonnes, which will be commissioned by September ’07.

It will also set up a 17.5-mw thermal-based captive power plant (to be commissioned by June ’07), which will result in savings in power cost to the tune of Rs 133 per tonne. Emkay expects cement prices to remain firm during FY07E and FY08E, since major capacity additions will come by end FY08E and early FY09E.

This will drive MCL to report a 21% CAGR topline growth between FY06 and FY08, with EBITDA margins improving from 24% in FY06 to 29.7% in FY08E and PAT increasing at a CAGR of 30% during the period FY06-FY08E.

With an expected CAGR of 30% in EPS over FY06-FY08E, Emkay expects RoCE and RoE levels to remain healthy at 28.5% and 36.0%, respectively, for FY07E, and 41.9% and 55.4%, respectively, for FY08E.

Biocon
Research: Anand Rahi
Recommendation: Buy
CMP: Rs 360 (Face Value Rs 5)
12-Month Price Target: Rs 400-460

Biocon is a leading biopharmaceutical company with strong R&D capabilities in fermentation technology, biotechnology and drug discovery. The company is a pioneer and leader in production of biopharmaceuticals through the fermentation route.

With focus on generics, bio-generics and drug discovery, the company is poised to grow exponentially in coming years. Its manufacturing capacity is set to rise four-fold. Moreover, with the commissioning of Biocon’s Biopark, volumes are likely to drive growth in coming years.

The company’s mainstay continues to be bio-pharmaceuticals. The competition in bio-generics is much less and the opening up of the biggest bio-generics market (USA) will boost growth potential for Biocon significantly.

In coming years, the company’s financials will improve, with sharp rise in volumes and wider range of products for the global generic markets. The long-term potential of the company lies in the success of its various R&D projects in drug discovery and drug delivery technologies.

This stock is meant for smart players looking for small downside, a modest upside in the short to medium term and very good long-term gains in a quality large-cap stock. So, it’s a stock for all classes and all time periods.

Bharati Shipyard
Research: Angel Broking
Recommendation: Buy
CMP: Rs 320 (Face Value Rs 10)
12-Month Price Target: Rs 450

Global order book registered a 29% CAGR over the period ’03-06. Going forward, a similar trend is expected on the back of growth in demand for vessels, which is a result of replacement demand and capex boom in the offshore segment (leading to increasing demand for offshore vessels).

India’s current market share in the world ship-building industry is around 0.3% in terms of dead weight tonne (DWT). It is set to gain market share on the back of cost competitiveness and availability of technically qualified manpower.

India also has a locational advantage (a vast coastline of 7,516 km). Bharati’s order book has shown a robust CAGR of 135% over the past three years. The company currently has an order book size of Rs 2,335 crore, which will sustain growth through FY09.

Completion of its Mangalore yard will further boost growth beyond FY09. The stock is currently trading at 17.8x FY07E earnings of Rs 17.9, 8.0x FY08E earnings of Rs 40.1 and 5.6x FY09E earnings of Rs 56.7. Angel initiates coverage on the stock with a ‘buy’ recommendation and a 12-month target price of Rs 450, giving a 41% upside from the current market price.

Sasken Communication
Research: Citigroup
Recommendation: Buy
CMP: Rs 492 (Face Value Rs 10)
12-Month Price Target: Rs 653

Strong presence in offshore R&D services and a turnaround in the products business in FY08E should ensure strong earnings momentum for Sasken in FY06-09E. Growth in the services business is being driven by higher acceptance of offshoring in R&D services.

The services business has marquee clients such as Nortel and Nokia. Citigroup expects the business to register revenue and EBITDA CAGR of 42% and 36%, respectively, over FY06-FY09. The Botnia acquisition has added further momentum to growth.

Sasken has been making significant investment in creating software for mobile phones. It forecast a 52% revenue CAGR over FY06-09 and a turnaround in FY08 for this business, with shipments expected to start over the next few months.

The loss-making products business has been a drag on overall profit. Hence, the stock looks expensive on P/E. Citigroup values the products business on a P/S basis and the services business on EV/EBITDA. Apart from sector risks, the products business has a high risk profile on the technology front and is exposed to delays in handset shipments.

Panama Petrochem
Research: Edelweiss
Recommendation: Buy
CMP: Rs 123 (Face Value Rs 10)
12-Month Price Target: NA

Panama Petrochem manufactures specialty petroleum products that serve as raw materials for various industries like inks and resins, textiles, rubber, pharmaceuticals, cosmetics, transformers and power cables. These industries are growing significantly on the back of strong demand growth for their manufactured goods, which in turn, is propelling Panama’s growth.

Panama also has a well-diversified customer profile, eliminating risks of revenue concentration. Panama has tied up with Petronas, the Malaysian oil and gas (O&G) giant, to distribute Petronas’ high-end auto lubricant ‘Syntium’ in India. Petronas is keen on entering the Indian market in a big way and plans to launch more of its products here.

Panama, the most likely medium for Petronas’ Indian foray, stands to benefit greatly, as the alliance will give Panama a foothold in the Rs 500-crore high-end auto lubes market in India. Depending on Syntium’s success, Panama will also start blending and packaging Petronas’ products at its Baddi plant in future.

Edelweiss expects this division to generate Rs 1.2 crore revenue in FY07E with gross margins of ~12%. It estimates revenues and profits to grow at 25% and 26% CAGR, respectively, between FY07E and FY09E. At the current market price, the stock trades at 5.7x FY07E EPS of Rs 23.2 and 4x FY08E EPS of Rs 33.